Seeking Out the Best Investments: How to Invest in Today's Market
As a savvy investor, you likely keep an eye on the markets, and you’ve noticed that much of the unpredictability and volatility of the past year continues to affect the markets into this year. It might be a little more challenging to find ways to build an investment strategy to preserve and grow your wealth.
In an investment environment that’s anything but static, you may be wondering: Where are the best opportunities to invest in 2024?
Challenges Facing Investors in Today’s Market
Several factors continue to impact market dynamics and influence investment decisions heading into 2024. Economic trends, including slower growth, higher inflation, and higher interest rates, have contributed to fluctuations in the market:
Global Economic Recovery: The pace and stability of economic recovery post-pandemic have differed significantly across countries and regions across the globe. While some countries have been able to rebound more quickly, other countries have experienced slower recoveries. These disparities can affect global supply chains, trade flows, and consumer behavior, slowing economic growth and affecting market performance.
Inflation and Central Bank Policies: The U.S. isn’t the only country that’s been impacted by inflation and high prices — many countries are feeling the effects of inflation due to supply chain disruptions, labor shortages, and consumer demand. As central banks have raised interest rates to combat inflation, the impact has been felt across various asset classes.
Geopolitical tensions: The wars in the Middle East and Ukraine, coupled with tensions and conflicts in Asia, Africa, and other regions around the world, are a threat to the global economy. Disputes between major world powers, trade embargoes, and sanctions impact market sentiment and the performance of specific sectors. Geopolitical events often trigger short-term market turbulence and contribute to overall market volatility.
Where to Invest in 2024
Despite uncertainties in the current market climate, there are opportunities to be found for investors. Investors can position themselves for long-term success by building portfolios that offer longevity and growth in 2024 and beyond. Diversification is key to weathering market fluctuations: by investing in various asset classes, you can reduce your overall risk exposure and enhance the resilience of your investment portfolio.
Defensive Investments
Defensive investing aims to protect your portfolio from significant losses during market downturns and periods of economic uncertainty. This investment strategy is appealing to risk-averse investors and those who prioritize capital preservation over high returns.
Some of the components of a defensive investing strategy include:
Low Volatility: Defensive investments typically exhibit lower volatility compared to the broader market. This means they’re less likely to experience wide fluctuations in value, offering a more stable investment option.
Consistent Returns: Defensive investing prioritizes steady income over high returns. Through dividends or interest, investors can benefit from reliable, consistent income even with volatile market conditions.
Capital Preservation: The primary goal of defensive investing is to safeguard the principal amount invested. This strategy focuses on assets that are less likely to lose value over time, even if they don’t offer substantial growth potential.
Defensive investments can include a mix of dividend-paying stocks, high-quality bonds, ETFs, and money market funds. This strategy concentrates on well-established companies with strong balance sheets, consistent earnings, and a competitive advantage in their industries — companies that are more likely to weather economic storms.
When investing defensively, you’ll typically focus on sectors that are less sensitive to economic cycles: healthcare, utilities, and consumer goods tend to perform better during economic downturns because they provide essential services or products.
A defensive investing strategy is designed to protect you from the full brunt of negative market movements through careful selection of low-risk, stable investments. Keep the flipside in mind, though — it may limit upside potential during bull markets.
Real Estate
Real estate remains an attractive investment option for those looking to mitigate risk and seek steady returns, even in uncertain or stagnant markets. This asset class offers several benefits to investors looking to build a resilient portfolio:
Inflation Hedge: Real estate can often act as a hedge against inflation. As the cost of living increases with inflation, rent, and property values can rise as well. This can potentially protect the dollar's decreasing value during times of inflation.
Diversification: Having real estate as part of your investment portfolio can help you diversify your assets and potentially reduce your overall risk. Real estate generally has a low correlation to the equity market, which means it can perform well even when stocks are down. Diversification with real estate can protect your portfolio from unstable market conditions.
Steady Income: Even with ups and downs in the market, the demand for housing remains constant: people will always need a place to live. Rental income from real estate investments can provide a steady, reliable cash flow, which is attractive during times of market volatility or when other income sources may be less dependable. You can also use the equity from your investment property to purchase additional properties, providing an opportunity for significant growth.
If you prefer to avoid owning and managing physical properties, there are other real estate investment options to consider. Real estate crowdfunding platforms enable you to pool your money together with other investors to invest in real estate projects. Crowdfunding also provides you access to larger (and potentially more lucrative) real estate investments that may otherwise be out of reach.
Real Estate Investment Trusts (REITs) also offer a way to invest in real estate without direct ownership. REITs invest in income-producing real estate assets and are typically required to pay at least 90% of their taxable income to shareholders as dividends. When you invest in REITs, you can also select investments that focus on non-cyclical sectors like infrastructure or healthcare, which are less impacted by market conditions.
Commodities
Commodities can help in portfolio diversification and protect you during uncertain or volatile stock market periods. They also provide a hedge against inflation and can serve as a counterbalance to traditional stocks and bonds since commodity prices often move in the opposite direction of financial markets.
Commodities are raw materials that include natural resources and agricultural products. There are several ways you can invest in commodities:
Futures Contracts: The most common way to invest in commodities is through futures contracts. Futures contracts are agreements to buy or sell a commodity at a predetermined price on a specific future date. Futures contracts allow you to speculate on a commodity’s price direction without having to hold onto physical goods.
Stocks of Commodity-Related Companies: You can also gain exposure to the commodities market by investing in the stocks of companies that are involved with commodities (such as agriculture companies). This is a less risky method of commodity investing than directly trading futures.
ETFs and Mutual Funds: Investing in commodity exchange-traded funds (ETFs) and mutual funds gives you exposure to commodities and participation in the commodities market through professionally managed funds. You can invest in a basket of commodities or focus on a specific sector.
While investing in commodities offers portfolio diversification and inflation protection, it’s important to note that commodities can be highly volatile and influenced by factors like global demand, geopolitical tensions, and weather conditions. Commodities trading can be complex and have a higher risk exposure than other investments.
Private Equity
Private equity investing involves investing in privately held companies that aren’t publicly traded, providing capital in exchange for ownership stakes. Private equity funds seek to actively manage and grow these companies, with the goal of investors realizing returns when the companies are sold or taken public.
Investing in private equity can be a strategic and attractive investment option in volatile or uncertain markets. As an increasingly popular alternative asset class, private equity offers several potential opportunities for investors in today’s market:
Diversification: Private equity returns are generally less correlated with public equity markets — private equity investments may not be as directly impacted by short-term market fluctuations, which can provide diversification for your investment portfolio.
Long-term Growth Potential: Private equity investments typically have longer investment horizons, as private equity managers focus on creating value over the long term. In an uncertain market, having the flexibility and patience to invest in strategic growth plans can be an advantage.
Potential for Higher Returns: While private equity investments lack the liquidity of traditional investments like stocks, this can also be an advantage. Investors are often compensated for this illiquidity through a potential premium in returns, especially if the investments generate significant value over time.
Active Management: Private equity funds take an active role in managing and improving the companies in which they invest, working to enhance the efficiency and performance of the companies involved. Fund managers also often have their own capital invested. This level of involvement and alignment of interests can be beneficial to you as an investor.
Increased Resiliency: Private equity investments often include companies in sectors that are more resilient to economic downturns, such as healthcare, technology, and essential services. This defensive positioning can contribute to the stability of your portfolio in uncertain market conditions.
While private equity investing can offer diversification and potential long-term growth, it's important for you to carefully assess your risk tolerance, investment horizon, and overall financial goals to determine if investing in this alternative asset is right for you.
Because of private equity’s lock-up periods, make sure you’re comfortable with committing capital for an extended period. Thorough due diligence is also crucial — you should carefully evaluate the fund’s strategy, fund manager experience, and investment risk-return profiles. It’s helpful to work with professionals, like Chicago Trust Administration Services, who have the necessary experience and knowledge of private equity investing to guide you in navigating this asset class.
The Importance of Patience and a Long-Term Perspective
It can be tempting to react quickly (and sometimes hastily) to market movements, but it can be more beneficial to your investment strategy and goals to take a more measured, thoughtful approach. A patient, long-term perspective can be crucial in volatile, uncertain markets.
Prices can swing dramatically in response to news, economic indicators, or geopolitical events. A long-term perspective helps you understand that short-term fluctuations are inherent in the market and may not necessarily reflect the true value of assets. Emotional reactions to market volatility can lead to suboptimal investment decisions.
Business fundamentals also take time — factors affecting the performance of investments, such as earnings growth, market share expansion, and innovation, often unfold over the long term. Giving these fundamental factors the time they need to play out can contribute to the overall success of your investments.
Sometimes, the best move is not to make a move at all: patient investors recognize that opportunities may arise when others are panicking or when market conditions create temporary challenges. By waiting for the right moment, you can capitalize on market inefficiencies. There is value in allowing time to shape your strategy and investment journey.
How Chicago Trust Administration Services Can Help
Even with a market ahead of us that may be filled with continued volatility and uncertainty, there are areas of investment that can offer the resilience and longevity needed in your portfolio to weather market fluctuations.
At Chicago Trust Administration Services, we can help steer you through the complexities of today’s market to seek out the best investments and opportunities to not only preserve capital, but also thrive. We help investors diversify their investment portfolios with alternative assets such as real estate, commodities, and private equity through the use of self-directed IRAs. Our knowledge and expertise can help you quickly close deals and build a portfolio that can continue to perform even in uncertain markets.
To see if we can help you expand your investment portfolio, we invite you to schedule a complimentary meeting with us by calling 312-869-9394 or emailing steve@ctasira.com.
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*The content and opinions in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
**CTAS professionals are not financial advisors and cannot provide advice or recommendations regarding specific investment decisions.